The Chancellor has confirmed the planned consultation into Research & Development (R&D) Tax relief is to go ahead, a step that Luvo Partner Ian Batkin hopes won’t be a case of the minority spoiling matters for the honest majority.
Back in his Autumn Budget 2018, Mr Hammond highlighted the government’s wider strategy to curb abuse of a number of tax incentive schemes, and specifically the intention to clampdown on the abuse of the R&D Tax incentive scheme.
Up until this month, there had been no visible progress with this until his update in his Spring Statement (13th March 2019), when he confirmed the consultation will begin in the next few weeks.
It strikes me this is a clear example of a very small minority potentially spoiling something great for the wider majority.
I just hope that the government’s latest move won’t put-off companies who are considering claiming or give them the impression that HMRC are planning a blanket clampdown on claims by SME’s.
The Autumn Budget announcement was the first real indicator of a move by the government to clampdown on R&D Tax Credit claims by some SMEs, i.e. only those businesses that are making their own fraudulent R&D Tax claims, in a bid to identify and then stop (or dissuade) them from doing so.
The plan outlined then was to reintroduce a PAYE/NIC limit on cashback payments received in a bid to stop dishonest claims.
This cap was removed some time ago (for accounting periods ending on or after 1 April 2012), but will be reintroduced from April 2020, albeit at three times total PAYE and NICs liability.
What we now know is that the government will launch a consultation in the coming months, and that this is intended to help prevent abuse of the R&D Tax Relief for SMEs, as part of a package on tax avoidance.
The Chancellor has reassured that this consultation will focus on how the measure will be applied, with the objective of minimising any impact on genuine businesses making a genuine claim for real innovation, product / service development, and who are eligible to make a claim.
Of course, the consultation will be carried out ahead of implementation to ensure that impacts are minimised, but one of our greatest concerns is the adverse effect this could have on start-up businesses, the very businesses you’d have thought the government would want to encourage with R&D activities!
Indeed, the government’s most recent statistics surrounding R&D Tax credits confirm that the vast majority – around 90% – of claims are from SMEs. Interestingly, this figure is almost double the percentage of four or five years ago, proving that the tax incentive and financial support scheme is genuinely helping exactly the businesses it was first conceived to do.
To date, the government has awarded around £3.5 billion to companies via its R&D Tax scheme, with the average claim by an SME being around £55,000.
For qualifying SMEs, R&D Tax relief allows them to claim a 230 % deduction on qualifying R&D expenses – in other words, £100 worth of R&D expenses will help a business cut £230 from its annual net profit before taxes, representing a real reduction on its overall tax bill.
Companies with fewer than 500 employees, annual turnover under €100million, or a balance sheet total under €86million, are eligible for the R&D tax credit scheme for SMEs.
As a business working directly with SMEs and also alongside clients of independent accountants, we have the remarkable opportunity to see first-hand some of the incredible innovation that SMEs are carrying out each and every day.
For these genuine, honest businesses, R&D Tax is recognition of this, but also valuable financial reward and support which means they can continue with their pioneering work, giving them the financial means to develop their ideas or products or perhaps recruit more people to support their next phase of R&D.
We will participate in the consultation process as much as we are allowed, but also continue to discuss this further with those of our clients who would / could be affected (including ways to possibly mitigate it).
Luvo works predominantly for small and medium sized businesses in a wide variety of industry and market sectors, and also delivers specialist R&D Tax, Patent Box and Capital Allowances advice and claims support to numerous independent accountancy firms and practices. Luvo works on a contingent basis and nothing is charged for any initial discussions or support until an engagement is fully agreed. The firm’s team has achieved a 100% success record in making claims for its clients.